Venezuela Nationalizes Lubricant and Fertilizer Companies

Mérida, October 11th 2010 (Venezuelanalysis.com) – Venezuelan President Hugo Chavez announced the nationalization of the lubricant and chemical company Venoco and the fertilizer company Fertinitro on Sunday, after accusing the two firms of price speculation.

The measures are the latest in a series of recent nationalizations that the government says are aimed at guaranteeing food access, decreasing dependence on food imports, and lowering price inflation in the oil-exporting nation.

Chavez made the announcement on his weekly Sunday talk show, “Hello, President.” In the coming months, the government and the companies will negotiate indemnity, which is required by the constitution. Government officials announced that all workers at both companies have their job security guaranteed, and the companies will now be managed by the Ministry for Energy and Petroleum.

Asdrúbal Chávez, the vice president of the state-owned oil company, PDVSA, said Venoco regularly purchased basic production inputs at state-regulated prices from PDVSA, and marked up the prices of their manufactured products by as much as 50%. “Now, the people will be able to receive supplies made by Venoco at just and reasonable prices that, at the same time, help to promote industry,” said the PDVSA official.

PDVSA President Rafael Ramírez, who is also minister for energy and petroleum, said Fertinitro sold only 10% of its urea to the domestic market at three times the controlled prices, despite a state subsidy on urea aimed at increasing the supply to the domestic market. “By controlling this plant, we have guaranteed all the urea that our farmers and our productive sector will need in order to sustain the sowing plan,” said Minister Ramírez.

Industrias Venoco, C.A. has the capacity to produce 10,000 metric tons of grease lubricants and 90,000 metric tons of oil lubricants per year. This accounts for 85% of the grease market and 16% of the oil lubricant market, according to the state news agency AVN. The company also produces chemical additives used for asphalt, industrial and agricultural machinery, and industrial cleaning agents. The Venezuelan company was founded in 1958 and over the years signed joint ownership contracts with private sector companies such as Mobil and the state-owned chemical firm Pequiven.

Fertilizantes Nitrogenados de Oriente (Fertinitro) is jointly owned by Pequiven (34.99%), the US-based Koch Industries, Inc. (34.99%), and Italian-owned Snamprogetti (19.99%), and produces ammonium and urea fertilizers. According to AVN, it is the country’s largest fertilizer producer and it produces 1.5 million tons of urea per year.

Neither company has publicly responded to the announcement, but Koch released a statement saying it had not received formal notification of the nationalization and is currently seeking more information.

Throughout last century, Venezuela’s oil sector grew while its agricultural sector shrank, leaving the OPEC nation reliant on oil exports and food imports.

The economy has experienced approximately 30% inflation in recent years, driven partially by rising food prices as a result of the world food crisis of 2008 and rising demand for food among Venezuela’s poor, whose living standards have improved.

The government has expropriated idle lands, taken over banks, financed producer cooperatives and state farms, and set up a network of distributors and state-owned food markets, in an effort to control a portion of Venezuela’s food supply chain.

Sunday’s episode of “Hello, President” took place on a new type of state-owned farm business called a “Social Production Unit,” where decisions are made in collaboration with local communal councils and worker councils and food production is driven by social need rather than profit.

Last weekend, the government nationalized Agroisleña, an agricultural supplies company that serves 70% of Venezuela’s producers, which was also accused of price speculation. The company’s name has since been changed to Agropatria, meaning “Agro-Homeland,” reflecting the government’s emphasis on achieving food sovereignty.

On Sunday, President Chavez announced a reduction in the prices of Agropatria’s products by 49.3% for 12 different fertilizers, 43% for 260 agrochemicals, and an average of 41.7% the price of seeds for black beans, corn, and rice.

These price reductions for producers “should be translated into good prices for the final consumer. We are rooting out the speculation problem and the capitalist robbery,” said Chavez. He said these prices do not add up to a state subsidy, but are slightly more than the cost of production.

The president guaranteed supplies to all producers who contract with Agropatria, and said all previously existing credits would be guaranteed, now at a rate of 8% interest. He approved 565 million bolivars for this purpose, to be administered by the state-owned Banco Agricola, Fondo de Desarrollo Agrario Socialista (FONDAS), and Fondo Bicentenario.

“Let the large estate owners know that the oligopoly from which they benefited so much is over. Now is the time the agrarian revolution is going to accelerate,” Chavez said.

Opposition leaders said the recent nationalizations threaten to slow economic growth in an economy that has already been in recession for six quarters. “The government appears to have assumed the strategy of corralling the productive sector,” said Noel Alvarez, the president of the nation’s largest private business chamber, Fedecamaras. “This is a tremendous blow against agriculture… production will decrease.”

Alvarez said the chamber will file a case with the Supreme Court accusing the government of violating the right to private property.

On Sunday, Chavez said his government does not oppose all forms of private property, an assertion he has made previously. “It is important to define what is perverse and capitalist private property in order to differentiate it from individual and familial private property, so that the capitalists do not continue confusing the people,” Chavez explained on Sunday. “Not all private property is condemnable; private property is perverse when it degenerates into selfish accumulation,” he said.

Over the past 11 years, the Chavez government has nationalized all or most of the nation’s telecommunications, electricity, cement, steel, and oil industries. It has increased the state’s share of the banking system to approximately 25%, redistributed 2.5 million hectares of idle privately and publicly held land and handed it over to producers’ cooperatives and state farms, and nationalized dozens of food processing companies.

According to the National Statistics Institute, the public sector workforce grew from 1.3 million workers in August of 2000 to 2.3 million workers in August of 2010. Public sector workers as a percentage of the total workforce grew from 14.6% to 19.4% during that time. Meanwhile, the private sector workforce grew from 7.6 million to 9.6 million during the same period.